Remuneration – Mind the Gap

Remuneration is a sensitive and mostly contentious discussion topic for most organisations. There is increasing pressure on companies to address remuneration principles and the pay gap, whether it be the gap between executive remuneration compared to the rest of the workforce, the gender pay gap for the same function or the pay gap between executive functions – the list is extensive.Successful companies breathe life into any economy and undoubtedly, drive, vision, exceptional leadership, ethical business practices, talented human resources and commitment forms part of the intricate journey towards building a sustainable business. Success has many price tags and remuneration is one of those price tags. To achieve results a company has to attract and retain talent with remuneration being the most significant portion of this endeavour.Mergence Investment Managers (‘Mergence’) conducted a study on executive remuneration in South Africa in context of both local and global trends. The study revealed some distressing statistics with one of the most notable findings that the Chief Executive Officers of the JSE’s top listed companies earned on average 140 times more than the average worker. The report issued by Mergence indicated that South Africa had the fifth biggest average pay gap in the world with the United States of America (1st), Hong Kong (2nd), Germany (3rd) and the United Kingdom (4th). This is both a shocking and surprising finding given that the South African economy is ranked 87th in the world by Gross Domestic Product per capita according to Global Finance.“Fair and responsible pay” was introduced in King III™ and King IV™ expanded on remuneration stating that “The governing body should ensure that the organisation remunerates fairly, responsibly and transparently, so as to promote the achievement of strategic objectives and positive outcomes in the short, medium and long term.” The King IV™ report contains a number of recommended practices in relation to remuneration and the most notable elements are:

Fair and just remuneration within the organisation;

A remuneration policy that addresses the remuneration of executive management in the context of the overall employee remuneration;

Performance measures in the company should achieve fair and just remuneration which also promotes the achievement of the strategic objectives of the company

Apart from the labour unions in South Africa actively engaging on the remuneration debate, shareholders are turning up the heat a few notches as well with a few of the most recent examples that of the Annual General Meetings of Nampak (the retention awards vetoed by shareholders), Discovery (nearly a quarter of shareholders voted against the remuneration policy) and Naspers (significant amount of shareholders voted against the executive remuneration policy).

The remuneration gap is a complicated discussion and definitely not a challenge that can be solved overnight. The fact is, companies need to rethink remuneration and there is a myriad of factors to consider but a good starting point is:

Evaluate remuneration on all levels of the organisations – ensure that as a minimum the same job function is remunerated equally and that it does not differentiate between genders;

Reconsider the performance measures and performance management system – does it encourage performance and can outcomes be measured?

Does incentives encourage bold risk-taking which could be harmful to the organisation in the long-term? Plainly stated – does it contribute to the long-term sustainability of the company?

Review the remuneration committee – does the organisation have the correct individuals on the committee and is their mandate clear? Some really careful planning is required at remuneration committee level

Be transparent in communication with stakeholders

Involve the social and ethics committee as they are tasked with monitoring the sustainability of the company.

“Think not only outside the box – but outside the room the where the box is stored” – Corbi Mittleid (Author of ‘The Self-Development Project Volume One: Clean out your LifeCloset”)

“The King IV ™ Report on Corporate Governance for South Africa 2016, Copyright and trade marks are owned by the Institute of Directors in Southern Africa” and the IoDSA website link is: http://www.iodsa.co.za/?page=AboutKingIV. King IV ™ Report on Corporate Governance for South Africa 2016 published on 01 November 2016